Personal Finance, Business and Finance Solution

Payroll taxes, or 941 taxes, are at the top of the list as far as collection priority goes. These taxes are those that are withheld from employee pay checks in trust and are sent on to the federal government. An alarming number of businesses don’t file or pay 941 taxes, and the consequences can be severe.

The IRS views not forwarding these taxes promptly as “stealing”.

You withhold employee taxes “in trust” – meaning your employees trust you with this money to be paid to the government on their behalf. By not paying this tax to the government, the government will see it as you pocketing the money. The IRS is particularly tough with payroll tax because they are out money twice. Any refund due to the employee from their withholding comes from tax money that was never paid.

Revenue Officer Assignment

Payroll liability over $10,000 is not handled by the IRS Automated Collection System. The case is assigned to an IRS agent called a revenue officer, who has one mission: collection. This agent calls the shots on negotiations, levies, and potential seizure of property. With personal taxes there are many options, but with 941 taxes the IRS is much more aggressive. Options such as the offer in compromise (OIC) or a currently-non-collectible status are much harder to obtain, and even payment plans will be on tight deadlines for information.

The reason an OIC is more difficult is the minimum offer amount equals the value of a business’ assets, before even looking at income. Additionally, the Civil Trust Fund portion is added to the offer amount. And third, OICs usually mean shutting the business down to liquefy assets and pay the offer amount – a fact that occurs quite often.

The revenue officer is looking to collect the entire balance, and will only settle for less if it’s clear there is no other way.

Consequences of Unpaid 941 Tax

If the payroll tax is not paid, the revenue officer can seize any and all assets or close the business down. The IRS sees no reason for you to stay in business if new taxes accrue and old debt will never be paid.

Besides liens or levies against business assets, payroll tax debt can become a personal tax matter. Anyone responsible for paying payroll tax can be assessed personally via Civil Trust Fund Penalty. This penalty is a portion of the total 941 tax debt, and the IRS can pursue anyone involved in the payroll tax matters for this amount. Company officers, bookkeepers, or people with check-signing authority are targets. Worse yet, the IRS does not split the Civil Trust Fund Penalty. If the penalty is $80,000, for example, they can pursue any and all of these people for the full $80,000. Whoever they can pin down first could be stuck with the entire amount.

Once the Civil Trust Fund Penalty has been assessed to you, the IRS can then take action against your assets.

Many payroll tax matters occur because the consequences are not known or are not taken seriously. But even with proper representation, this is a very serious situation. Can the IRS really levy the business, seize its assets, or shut it down? The simple answer: yes, if it comes to that.